With the pace of business growing exponentially, it is essential to be able to collect legible signatures from multiple signatories in multiple geographic locations in order to close business transactions within required time frames, while assuring the authenticity of the signatures and the integrity of the legal documents being executed. As a result, there is a need, on an expedited basis, to establish the identity of parties in multiple locations and their intent to be legally bound to the documents executed in a business transaction.
Contract Formation
The cornerstone of every business deal is the contract that embodies the agreement between the parties. In times past, a contract was commonly formed by the handshake of two parties. Parties knew each other and their reputations, and lived in the same community.
Eventually, important legal transactions, such as the purchase of real property, were memorialized in a written instrument and the identity of the seller was verified by a notary public. The instrument was (and still is) recorded in a central repository such as the local county clerk's office, in order to put the world on notice of the transaction and reduce the likelihood of fraud. Whether oral or written, each step in the process involved the physical presence of the signatories. Unlike electronic transactions, establishing the identity of the parties and their intent to sign the document presented to them was a relatively easy task.
Document Production
The method by which contractual documents are produced significantly impacts the integrity of the documents and the time involved from deal formation to closing. Documents were originally handwritten, and later typed. The advent of carbon paper resulted in reliable copies each person signing the document could review and retain. Copy and facsimile machines achieved the same result much more quickly.
However, all of these methods of document production require the physical presence of signers, or a trusted third party to physically circulate documents for signature such as a courier, the postal service or overnight delivery services. The use of third parties adds a major time factor to closure of a transaction, results in additional cost, and injects uncertainty due to the increased risk of physical loss of the documents. Furthermore, while documents are being circulated, business circumstances can change and parties may refuse to sign. The travel time required for multiple parties to physically meet at one location (e.g., a law firm) to close a deal is prohibitive. Thus, parties are forced to weigh the safety and certainty of physically getting parties together for a formal closing versus the cost and time involved. The advent of fax machines has facilitated the closing of business transactions but is of limited value in major transactions with numerous documents. Pages can be mixed up or missing. Due to the length of many documents, signature pages are often circulated alone. This is a dangerous practice leaving parties unsure as to what they are signing. Faxed signatures may also be illegible and thus repudiated.
Online Contracting/Use of Electronic Signatures
The consummation of business transactions in an electronic environment has become a necessity for businesses seeking to maintain a competitive advantage in a global marketplace. As with any transaction, signatures of the parties are required to close the deal and the use of traditional “wet” signatures in an entirely electronic environment was quickly recognized as inadequate. Electronic signatures evolved in response to this need. An electronic signature is an electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. There are many types of electronic signatures. For example, an electronic signature can be as simple as a name typed at the bottom of a page. However, due to concerns regarding security and authenticity, more sophisticated technologies are used, including a digitized image of a handwritten signature, a digital signature using encryption and public key architecture, and biometric signatures (thumbprint, voiceprint, retinal scan, palm scan, DNA analysis). As further security, an electronic signature can be electronically witnessed using digital or biometric technology.
Concerns regarding authenticity extend not only to electronic signatures but to the documents being signed. Techniques such as digital fingerprinting, using a public domain algorithm such as the MD5 Message-Digest Algorithm (RFC 1321), developed at the Massachusetts Institute of Technology, are used to enable authentication and prove that a document has not been altered. The document may also be time and date stamped through a digital notarization process.
Clearly, the technology to deal with individual electronic signature verification or document verification is available. What is needed is a system and method for quickly and safely collecting electronic signatures from multiple signatories in multiple geographic locations and appending them to authenticated documents in order to consummate critical, time-sensitive transactions.
Removal of Legal Barriers to Use Electronic Signatures
A major barrier to the development of online contracting has been the fear that a party attempting to repudiate the contract would successfully argue that it was not in written form as required by statute and thus not valid. As recently as 1996, a Georgia court ruled that a faxed document did not constitute a valid written notice of claim. Department of Transportation v. Norris et al., 222 Ga. App. 361; 474 S.E.2d 216 (1996) (“It may also be added that a facsimile transmission does not satisfy the statutory requirement that notice be ‘given in writing.’ Such a transmission is an audio signal via a telephone line containing information from which a writing may be accurately duplicated, but the transmission of beeps and chirps along a telephone line is not a writing, as that term is customarily used. Indeed, the facsimile transmission may be created, transmitted, received, stored and read without a writing, in the traditional sense, or a hard copy in the technical vernacular, having ever been created.”) Contrast this with other government agencies, such as the U.S. Patent and Trademark Office, which not only recognize, but encourage transmission of documents by facsimile, and recognize signatures on documents transmitted by facsimile. 37 C.F.R. §1.6(d)(“Except in the cases enumerated below, correspondence, including authorizations to charge a deposit account, may be transmitted by facsimile.”)
In response to this concern, 46 out of 50 states have adopted some form of electronic signature statute. Many are patterned after the Uniform Electronic Transactions Act (UETA) that was promulgated by the National Conference of Commissioners on Uniform State Laws in July, 1999. Although a few states adopted legislation dealing specifically with digital signatures, most state electronic signature statutes are technology neutral and thus flexible enough to embrace future technologies that may be developed.
New York enacted the Electronic Signatures and Records Act on Mar. 27, 2000 (N.Y. State Technology Law Sections 101-109 (1999)). This act is not based on the UETA but shares some of its attributes, such as being technology neutral. It provides that the use of signatures made electronically has the same validity and effect as the use of a signature affixed by hand. The New York law also enhances and clarifies the authority of state government to create and retain records in electronic form.
On Oct. 1, 2000, the federal Electronic Signatures in Global and National Commerce Act (E-SIGN) became effective. This federal law was passed due to concerns about the lack of uniformity among various state statutes. E-SIGN provides that a signature relating to a transaction may not be denied legal effect, validity or enforceability solely because it is in electronic form. It further provides that a contract relating to a transaction affecting interstate commerce may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation. E-SIGN specifically authorizes the use of electronic means to notarize, acknowledge, or verify documents.
Similar to the UETA, E-SIGN is technology-neutral and is designed to ensure that parties who elect to use electronic signatures and records may do so with confidence that they carry the same force and effect as non-electronic signatures and records.
Benefits of the Invention
E-SIGN has eliminated concerns that a contract formed and signed electronically would be found invalid. However, ensuring the validity of the contract that is created is only the first step. Each party to the transaction must be confident that the document he or she reviewed and approved is the one that he or she signed, and must be confident that the electronic signature appearing on the document is in fact that of the party to be bound. This must all be achieved on an expedited basis in order to meet deal deadlines. The inability to meet crucial deadlines can result in the failure of multimillion-dollar deals to close or the inability of a company to pursue other deals due to time spent on closing current ones. Traditional methods of collecting signatures in connection with business transactions are too slow, too costly, and/or too fraught with uncertainty to be viable in the New Economy.
Implementation of a system and method for collecting and authenticating electronic signatures that uses both an electronic signature and a signature image, and the creation of a repository of such signatures for fast and reliable use in closings could greatly reduce the time, expense and risk involved in the closing of business transactions and provide a significant, measurable benefit to global commerce. Thus, a system and method for collecting and authenticating electronic signatures would permit businesses to quickly establish the identity of contracting parties and their intention to be bound to the authenticated documents they sign, regardless of the parties' physical location. Not only is this an issue for business-to-business transactions, it would conceivably apply to and benefit business-to-consumer transactions as well.
Others have patented inventions related to digital/electronic signatures, although to date no one has provided a comprehensive solution as described herein.
For example, U.S. Pat. No. 6,167,518, “Digital signature providing non-repudiation based on biological indicia,” assigned to Commercial Electronics, LLC (New York, N.Y.), describes a digital certificate formed from a digitized representation of a unique biological feature of a registrant, for example, the registrant's chromosomal DNA. The digital representation is signed with the registrant's private encryption key and transmitted to a certificate authority. The registrant's identity is verified at a remote registration terminal. When the registrant's identity has been verified the certificate authority forms the certificate by encrypting the digital signature with the certificate authority's own encrypting key. The certificate is also held in a publicly available directory. The certificate is used to authenticate an electronic document by appending the certificate to the electronic document. The document and the certificate are then transmitted to a receiving terminal. The identity of the transmitting party can be verified by inspecting the certificate. In the event the sending party denies sending the document, the biological feature can be extracted from the certificate and directly compared with the actual biological feature of the sending party.
U.S. Pat. No. 6,021,491, “Digital signatures for data streams and data archives,” assigned to Sun Microsystems, Inc. (Palo Alto, Calif.), describes methods, apparatuses and products for verifying the authenticity of data within one or more data files. Each data file is provided with an identifier, such as a one-way hash function or cyclic redundancy checksum. A signature file, that includes the identifiers for one or more data files, is provided with a digital signature created with a signature algorithm. The data file(s) and signature file are then transferred, or otherwise provided to a user. The user verifies the digital signature in the signature file using a signature-verifying algorithm. Once verified as being authentic, the signature file can be used to verify each of the data files. Verification of the data files can be accomplished by comparing the identifier for each data file with the corresponding identifier in the signature file. If the identifiers in the data and signature files match, then the data file can be marked as authentic. If the identifiers do not match then the data file can be rejected or otherwise dealt with accordingly.
U.S. Pat. No. 5,915,024, “Electronic signature addition method, electronic signature verification method, and system and computer program product using these methods,” assigned to Kabushiki Kaisha Toshiba (Kawasaki, Japan), describes an apparatus for adding an electronic signature to document data including a delimiter character detector for dividing the input document data into a plurality of divided document data by using as a delimiter a predetermined character appearing in a document represented by the document data, a digest generator and an encrypter for generating an electronic signature based on the divided document data for each divided document data, and a signature-added message generator for generating the divided document data, the electronic signature based on the divided document data, and information for associating the divided document data with the electronic signature.
U.S. Pat. No. 6,091,835, “Method and system for transcribing electronic affirmations,” assigned to PenOp Limited (Somerset, United Kingdom), describes a method and system for recording a detailed record or “transcript” of the acts, events and forensic circumstances related to a party's affirmation of an electronic document, transaction or event. The transcript is recorded in a data object made secure through the use of encryption and a checksum. The system directs a ceremony whereby the party affirming the document, transaction or event is required to undertake a series of steps in order to successfully complete the affirmation and have the affirmation recorded; thus participation in the ceremony must take place before an affirmation will be accepted. The steps of the controlled procedure serve to gather evidence to confirm specifics such as that the affirming party: i) is in fact the identified party; ii) understands that by entering affirming data, e.g. a password, key, biometric sample or other affirming data he or she is thereby affirming or becoming legally accountable for the undertakings of the document, transaction or event triggered by computer interaction; iii) has adequately reviewed the document, transaction or statement to be affirmed (where a client application presents such a document transaction or statement to the system of the present invention); and iv) understands the undertaking of an event or the provisions within the document, transaction or statement and the consequences of affirming it. The system of the present invention is flexible and can be configured to accept all types of biometric, infometric and cryptographic signatures or affirming acts, such as those created by passwords, secret cryptographic keys, unique secret numbers, biometric recordings such as handwritten signatures or other biometric information, or multi-media recordings of affirming statements. It also permits the affirmation procedure to be tailored to the specifics of a client application through the use of an authentication policy component.
U.S. Pat. No. 6,064,751, “Document and signature data capture system and method,” assigned to PenOp Limited (Somerset, United Kingdom), describes a computer-based method and system for capturing and verifying a handwritten signature. The handwritten signature may relate to a document, such as an electronically stored document. An image of the document is displayed. A user signs the document electronically, and the handwritten signature is electronically captured. A set of measurements relating to the handwritten signature is determined and stored in a signature envelope. Optionally, a checksum of a checksum of the document can be determined and stored in the signature envelope. The claimed identity of the signatory can also be stored in the signature envelope. The signature envelope is encrypted. The signature envelope can be communicated to another application or computer platform, or stored for later verification. The signature envelope is decrypted, and the set of measurements stored in the signature envelope are compared against a known set of handwritten signature measurements to verify the identity of the signatory. The system includes a database of signature templates storing verified signature information. The verified set of signature measurements are compared with the set of measurements stored in the signature envelope to obtain a similarity score. The present invention includes a gravity prompt feature to alert the signatory as to the nature, seriousness and/or contents of what is being signed. The gravity prompt can be stored in the signature envelope as part of the record of the signing event.
There are several important differences between the present invention and the patents discussed above. A first difference is that the present invention utilizes a public domain message digest, where certain background patents use encryption keys. A second difference is that the present invention utilizes both an electronic signature and a signature image, where certain background patents use only one of these forms of signature. A third difference is that the present invention is intended to verify that signatories in multiple locations have reviewed and signed identical documents, where certain background patents are solely intended to verify the identity of the signatory.
Thus, there is a long felt and demonstrated need for an invention that solves the problem of collecting and authenticating electronic signatures to facilitate closing deals in a fast, cost-effective manner without sacrificing the safety and integrity of the transaction.